G three similar companies in the same line of

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Unformatted text preview: r value based method of accounting for stock-based compensation plans, have already implemented the prospective method, and other companies should continue doing so in order to ensure a higher degree of comparability in future. With regard to disclosure requirements JPMorgan advocates just disclosing information in footnotes to the financial statements, not showing the expense in income statement. In the firm's opinion, showing the pro forma effect of expensing stock options would be sufficient. Moreover, disclosure should be included in footnotes, not in the "Summary of Significant Accounting Policies." 4.2.6 SunTrust Banks, Inc. 59 SunTrust Banks, Inc. (SunTrust) is one of the U.S. largest commercial banking organizations. SunTrust's primary businesses include deposit, credit, trust and investment services. The company provides credit cards, mortgage banking, insurance, brokerage and capital market services (www.suntrust.com). SunTrust believes that the introduction of two additional methods of transition to companies, who voluntarily choose to adopt the fair value based method of accounting for stock-based employee compensation plans, would cause inconsistency and incomparability of financial results. The possibility exists that, e.g., three similar companies in the same line of business, each having a comparable number of outstanding options, would choose a different method of transition and show various amounts of stock-based compensation expense. In addition, the fourth company in the same line of business with a similar number of outstanding options may choose to apply the intrinsic value based method of accounting for stock options. Consequently, the results provided by these companies would be absolutely incomparable. SunTrust emphasizes that more disclosure itself will not be useful unless there is only one uniform transition method. In general, the company approves the method proposed in SFAS 123, namely prospective recognition, as this method in conjunction with new disclosure requirements will fulfil the goal of providing comparable and consistent results in financial statements. 4.2.7 Merrill Lynch & Co., Inc. Merrill Lynch & Co., Inc. (Merrill Lynch) supports FASB's decision to provide companies with two additional transition methods as it will address the issue of comparability of reported results. Merrill Lynch especially supports the continuation of using the prospective transition method. If it is removed, it may discourage some of the companies from voluntarily adopting the fair value based method of accounting for stock-based compensation. Merrill Lynch recognizes the concern of lack of comparability if three transition methods are allowed. The company's argument is that inconsistency does exist under current rules and increasing transition choices will hardly impair comparability any further. Also, Merrill Lynch turns FASB's attention to the valuation methodology allowed by SFAS 123. It questions the ability of the Black-Scholes option pricing model to adequately address the non-transferability feature of options and therefore accurately measure the expense. The company believes FASB should revise its provisions on option pricing models and allow more refined techniques to be used. 60 4.2.8 Microsoft Corporation Microsoft Corporation (Microsoft) is a leader in manufacturing software and operating s ystems d eveloping, p roducing a nd s upporting c ompany (www.microsoft.com). Microsoft believes that for the purpose of consistency, only one method of transition should be available upon adoption of the fair value based method of accounting for stock-based compensation expense. Though the company agrees with the requirement to present stock options related disclosure in interim financial statements, it does not support the suggestion to include disclosure in the “Summary of Significant Accounting Policies.” 4.2.9 Credit Suisse Group Credit Suisse Group (CSG) is a world-leading financial services company providing its clients advice in all aspects of finance around the world (www.credit-suisse.com). In CSG's opinion, only one transition method should be allowed in order to ensure consistent expense recognition and, thus, comparability in the income statements of those companies, which chose to adopt the fair value method in SFAS 123. CSG suggests that FASB should maintain the prospective transition approach allowed by SFAS 123. CSG also emphasizes that option pricing models do not adequately reflect the true economic cost of employee stock options and therefore recommends FASB to address this issue in the Exposure Draft. CSG considers quarterly disclosure provisions to be excessive. It would not provide useful information to users of financial statements as most stock-based compensation awards are granted on a yearly basis. 4.3 Review of Comment Letters Submitted on IASB Discussion Paper on Share-Based Payments In this section we will present an overview of Comment Letters submitted to IASB with regard to the Discussion Paper on Share-...
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